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Impacts of COVID-19 on foreign direct investment

Author

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  • Hayakawa, Kazunobu
  • Hyun-Hoon, Lee
  • Cyn-Young, Park

Abstract

This study empirically examines how COVID-19 damages have impacted foreign direct investment (FDI) using quarterly data of bilateral FDI flows from 173 to 192 countries from the first quarter of 2019 to the second quarter of 2021. We measure the severity of COVID-19 damages using three indicators—the number of confirmed cases, the number of deaths, and the stringency index of government policies that restrict people’s activities. We differentiate FDI flows in terms of two different entry modes—greenfield FDI and cross-border mergers & acquisitions (M&A). FDI flows are measured in terms of the number of cases/deals and the US dollar values.We find heterogeneous effects of COVID-19 damages on FDI according to sectors and entry modes. In the manufacturing sector, COVID-19 damages in host countries have had significant negative impacts on both greenfield FDI and cross-border M&A, whereas those in home countries do not show any significant negative impacts on both types of FDI. In the service sector, on the other hand, COVID-19 damages in both the host and home countries are found to have negative impacts on greenfield FDI, whereas the impact of COVID-19 on cross-border M&A appears to be mostly insignificant.

Suggested Citation

  • Hayakawa, Kazunobu & Hyun-Hoon, Lee & Cyn-Young, Park, 2022. "Impacts of COVID-19 on foreign direct investment," IDE Discussion Papers 831, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    • Handle: RePEc:jet:dpaper:dpaper831
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    References listed on IDEAS

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    More about this item

    Keywords

    COVID-19; greenfield FDI; cross-border M&A;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development

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